Regenerating Communities

Financing the Evolution of the Built Environment

Part 2 – Oct. 7, 2013

Our view into a vast forest of old-growth–an appropriate place to discuss Fundrise!

Sitting on a rock outcrop high above the Oneata Creek valley in the Columbia Gorge, I asked my eight hike participants[1] to suggest one piece of news in the past two weeks that they felt boded well for the environment. After a pause, I said, “Okay, I’ll start: Yesterday’s Oregonian had a story on the Burnside Bridgehead project that mentioned a new way of funding commercial real estate. Fundrise, a crowdfunding resource for the built environment, allows folks like you and me to invest in it–perhaps allowing us to better define what gets built in our neighborhoods.”

Guerrilla Development partners Andres Ochoa, left, and Kevin Cavenaugh pose with a model of The Dumbbell project. They are seeking investors through Fundrise, a crowdfunding website. (photo courtesy of Sam Tenney/ Daily Journal of Commerce)

Before I could go any further Peter, one of my participants, jumped in saying that he had just joined Guerilla Development ‘s Burnside Bridgehead project investor network yesterday. He went on to say that what he had done was express an interest in investing a specific amount, rather than invest it, as the project was simply testing the waters right now. He also expressed the opinion that local investments from Portlanders will allow far more creativity to thrive in our local buildings than Wall Street banks would likely allow. He described Guerilla’s Dumbell project designed by Kevin Cavanaugh as two six-story mixed-use buildings, looking like they were covered in gift-wrap and connected by sky bridges–really imaginative, really Portland!

Like Peter, I’m really excited about Fundrise’ launch in Portland! It seems that when I was writing my “Financing the Evolution of the Built Environment” blog a few years ago, Dan and Ben Miller were on the other side of the country–in my hometown of Washington, DC–actually creating the vehicle that could make possible the return to local funding that I was writing about.

from wwylts.com’s web site–a Portland-based start-up

Using the Fundrise model could mean that the passionately involved neighborhood activists that we see in Portland–and throughout the nation–could use their energy actually funding projects that they would like to see, rather than fighting projects they oppose. Combined with Portland’s local startup What Would You Like To See?, Fundrise really could become a vehicle to helping neighborhoods define what gets developed.

According to the Oregon Daily Journal of Commerce, Fundrise “makes money as a subscription-based service and through commissions.” It takes care of what would otherwise be an immense amount of paperwork for a developer to pursue the SEC’s Regulation A route to seeking investment capital.

For The Dumbell, Guerrilla is attempting to raise up to $1.5 million in equity to leverage a loan for the balance of the $8.5 million project. Guerrilla and Fundrise are soliciting investments from unqualified investors. To do that, they’ve registered the project with the state securities division. According to the Portland Business Journal, “The offering is limited to Oregon residents. The minimum investment is $100.”

Fundrise does not get us all the way there in financing the evolution of the built environment. In order to give our young planning and urban design graduates and our minority and women business enterprises—and all those underemployed planners’, urban designers, architects, etc.–a chance at fulfilling careers in built environment fields, we still need to press for many changes to the banking and investment systems at the federal level that I pointed out in my Part 1 articlecialis no prescription.

These recommendations could save the Federal government billions (hey Congress!)–while moving us towards more walkable and resilient neighborhoods. However, in an era of Congressional gridlock, Fundrise offers a tremendously important start–and HOPE!

A CNU initiative Live/Work/Walk: Removing Obstacles to Investment maintains that new development has not served this demand partly because federal policies . . . cap the commercial component at a small percentage of the gross floor area/net rentable space or gross income derived of a given project. Combined with the tendency of private lenders to follow or apply even more restrictive policies than the federal underwriting rules, almost all of America’s pre-World War II Main Streets, as well as newer forms such as live/work units, are excluded from the secondary mortgage markets and HUD’s capital program for rental housing. Reforming this non-residential limit to be more in touch with today’s market should go hand-in-hand with returning to more local investment via Fundrise and other such mechanisms.

Amongst the seven specific changes Smart Growth America coalition recommends in its A Call to Action: Better targeting real estate tax expenditures. The mortgage interest deduction, one of the largest of all tax expenditures, averages $70 billion annually. The real estate tax deduction, which makes property taxes deductible from income taxes, averages $26 billion annually. And the capital gains exclusion, which exempts from income taxes profit from the sale of a home (within limitations), was worth over $23 billion in 2013 alone. That’s $119 Billion a year!

SGA says these deductions mostly go to upper income homeowners now and some may even go to housing speculators. Better targeting real estate tax expenditures would ensure that these subsidies return to their original intent of promoting homeownership and helping more Americans reach the middle class.

I really like your proactive and enthusiastic attitude! I also like the notion of public engagement in the process. One challenge that your approach raises is how to avoid NIMBYism? For example many people would love to live in a walkable neighborhood, but this requires I relatively high density of development, on average. One strategy that has worked in some situations is to permit the addition of well spaced residential high rise towers in existing moderate density neighborhoods. The upside of this approach to achieving an adequate density is that most existing houses or mid rise buildings are allowed to remain, instead of requiring everything be torn down and rebuilt as midrise housing. Add in the advantages of underground off street parking and the neighborhood gets even better. My experience is that it is very difficult for some people to appreciate these advantages and so neighborhood redevelopment tends to take on preindustrial forms that are visually appealing but less effective. Your project appears to get around these issues and I am wondering what you have learned through your efforts about constructive neighborhood engagement that allows unprecedented, creative and appealing projects like yours to be built, even though NIMBYism could interfere?

Thanks for your thoughtful comment, Robert!
It’s actually Fundrise’s and the developers’ they work with approach rather than my approach. I’m just one who sees its possibilities. But I thought about the NIMBY factor too. So far what Fundrise does is to partner with a developer who already has a building design. Some of those funded via Fundrise in Washington, DC have been high rises–at least DC’s version of a high rise.

Here in Portland, there has been some questioning of the high rise and density concept by some members of the built environment community who are also thought leaders. According to Michael Mehaffey and Suzanne Crowhurst Lennard: Some argue that tall buildings provide greater residential density, which helps with urban sustainability. But high urban densities can also be achieved without tall buildings, as human-scale cities such as Paris demonstrate. By contrast, tall buildings often achieve lower residential density than one might expect because of setbacks needed to limit shading, wind and view problems. On Portland’s small blocks, these “massing” problems are especially acute, and they are often not adequately addressed during design review.

The project I describe in my blog, the Dumbell by Guerrilla Development Co., is only six stories tall and it is office and retail rather than residential. It’s in what is a transitioning industrial area, so there are few neighbors around to protest.

After I pointed out to Michael Mehaffey, mentioned above, that City of Portland planners are using similar arguments to Robert Walsh’s in the latest iteration of the “West Quadrant Plan”, a part of the Central City 2035 Plan, he sent this response:

I know they are all talking that way and that is precisely why I felt it was important to begin this debate, based on evidence rather than on the commonly chanted canards.

Here are the canards of Robert’s that I would call out (and have in the past, to my good friend Robert Walsh):

1. CANARD: Towers allow densification while keeping other existing buildings, whereas other mid-rise approaches don’t.
REPONSE: As Patrick Condon has pointed out, there are many other alternate “gentle” densification strategies that Robert Walsh ignores. For example, there is allowance of accessory dwellings, multiple units, additions, lot subdivisions, new skinny houses, — and of course, mid-rise infill, which can be close to or as much as tall buildings. Particularly so when tall buildings must mitigate their impacts with expensive setbacks and step-backs. This produces an even more inherently expensive building form, poorly suited to affordability. (Unless one wants to speak of set-asides, which then have to be subsidized with even more concentrations of ultra-rich buyers – not a sustainable approach…)

2. CANARD: Underground off-street parking makes the neighborhood even better. RESPONSE: Really??? Driving your car into your luxury tower and getting into your elevator without even encountering the street or the public realm makes the neighborhood even better? Sounds like a vertical gated community to me.

By contrast, I think on-street parking makes the neighborhood better, in a way that encourages attrition of the automobile. (See Jane Jacobs on this.) At most, we need small parking lots, and small building basement lots where they exist — meaning smaller buildings.

3. CANARD: People don’t appreciate “we architects'” sophisticated logic so “neighborhood redevelopment tends to take on preindustrial forms that are visually appealing but less effective.” RESPONSE: Less effective than what? Achieving an abstract density target? These “visually appealing” and “preindustrial forms” are the result of centuries of evolution, and actually embody organized complexity at the street. “We architects” by contrast have been relentlessly stuffing our vision down their throats, and/or marketing it relentlessly through Dwell etc., while ignoring the actual power of distributed control. It is we who have a less complex, less sophisticated, less resilient approach. Why do we do this? Robert had the right word: Industrial. We are stills for industry. (See e.g. http://www.shareable.net/blog/architectural-myopia-designing-for-industry-not-people)

Why does this actually matter? If we want many people to live in more compact and sustainable communities, we need to take these lessons to heart, and make truly attractive and livable places for most people – not only for us trendies. If we only want a few trendies to live in highly urban environments (including many fabulously wealthy people with monstrous carbon footprints who also have country houses, etc.) then perhaps Vancouver-style downtowns are the way to go. Ahh, maybe not.
Best, m

Me again:
I think Michael makes some excellent points here. This discussion is actually worthy of a separate blog that is more focused on urban form and urban design. I hope to get to that soon.